CME Group: Why Is the Gold Rally Leaving Silver Behind?

Year-to-date, gold prices have soared to all-time highs. However, silver has lagged. In fact, on a nominal price basis, silver trades at about half of its all-time high.

That’s a significant gap. But it’s also one that reflects a number of unique conditions to the markets right now. Investors who understand those conditions can make better decisions on known when to trade gold and when to trade silver.

First, gold prices tend to move opposite to interest rate expectations. With investors still expecting interest rates to move lower, gold prices tend to trend higher.

That move explains why gold prices trended lower when interest rates first started moving higher. Investors expected gold to move higher at the time given rising inflation rates.

Currently, gold has continued to rally, even as rate cut expectations have dropped.

Part of that is driven by supply and demand dynamics. Central banks remain massive buyers of gold. That is keeping pressure on supply. And it’s a sign of why gold is gaining right now while silver isn’t.

However, silver could rise along with gold amid geopolitical fears. Soaring fears have seen both metals spike higher in price. However, those price spikes tend to wear off quickly when the geopolitical fears decline.

Silver is historically undervalued relative to gold. But soft growth for silver’s industrial demand could be weighing on silver relative to gold right now. Either way, with positive trends underway for gold and silver prices, mining companies could see big returns from here.

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